Synopsis: An overview and summary of the key points, which we feel are most relevant to financial advisers, that were legislated for in Finance Act 2015.
The Finance Act 2015 brings together and updates some of the draft clauses published in December 2014 with some of the measures announced more recently in Budget 2015. There have also been some changes made to a number of the draft clauses which were subject to consultation. Other proposals will be deferred to later Finance Bills.
In view of the general election, the 2015 Finance Bill was truncated due to the shortage of time. Essential changes to personal taxation for 2015/16 were made such as the changes in income tax limits and rates, increases in the personal allowance, increases in the capital gains tax annual exemption etc…
However, in addition to these necessary changes what else was included?
We take this opportunity to provide a summary of the key points which were legislated for in Finance Act 2015 which are largely to do with tax avoidance.
Diverted Profits Tax
The introduction of the Diverted Profits Tax (DPT), which has been initially set at the rate of 25%. The DPT will apply where a foreign company “exploits” the permanent establishment rules or where a UK company or a foreign company with a UK-taxable presence uses artificial transactions or entities that “lack economic substance” to obtain a tax advantage.
Disposals of UK residential property by non-UK residents
From 6 April 2015 non-UK resident individuals, trusts, personal representatives and narrowly controlled companies will be subject to CGT on gains accruing on the disposal of UK residential property. Non-resident individuals will be subject to tax at the same rates as UK taxpayers (28% or 18% on gains above the annual exempt amount). Non-resident companies will be subject to tax at the same rates as UK corporates (20%) and will have access to an indexation allowance.
Principal private residence relief
From 6 April 2015 a property may only be treated as an individual’s main residence for a tax year where the person has either been tax resident in the same country as the property for that tax year or lived in the property for at least 90 midnights in that tax year. These rules apply equally to a UK resident individual disposing of an overseas residence as it does to a non-UK resident disposing of a UK residence. If the property is only owned for part of a year, the 90-day rule is reduced by a proportionate amount.
Remittance basis charge
The remittance basis charge paid by those non-domiciliaries who have been UK resident for 12 out of the last 14 tax years has increased from £50,000 to £60,000. A new remittance basis charge of £90,000 has been introduced for those who have been UK resident for 17 out of the last 20 tax years.
Inheritance tax exemption for death on active service
No inheritance tax will be payable where someone dies on or after 19 March 2014 from a wound, accident or disease contracted whilst on active service against an enemy (or on service of a similar nature) during that time or from aggravation during that time of a previously contracted disease. This exemption applies when HMRC Inheritance Tax receives a valid certificate issued by the Ministry of Defence.
Pension annuities – death benefits taxation and recipients
From April 2015, beneficiaries of individuals who die under the age of 75 with a joint life or guaranteed term annuity will be able to receive any future payments from such policies tax free provided no payments have been made to the beneficiary before 6 April 2015.
Disguised investment management fees
Finance Act 2015 also introduced new rules which apply to ‘disguised fees’ arising to investment managers on or after 6 April 2015. We covered this in more detail in our earlier bulletin. [link BU15B25]
Annual Tax on Enveloped Dwellings
From 1 April 2015, the Annual Tax on Enveloped Dwellings (ATED), which is payable by companies and other corporate entities that own UK residential property which is valued above a certain amount, has increased by 50% of the post inflation figure on residential properties valued at more than £2 million. The new charges are:-
|Property value||Annual charge in 2015-16|
|£2m – £5m||£23,350|
|£5m – £10m||£54,450|
|£10m – £20m||£109,050|
Other tax avoidance measures
A number of other tax avoidance measures – including a tightening up of the Disclosure of Tax Avoidance Schemes (DOTAS) provisions, denial of entrepreneurs’ relief on the disposal of shares made on or after 18 March 2015 in a company that is a non-trading company in its own right, enhanced civil penalties for offshore tax evasion and clarification of the effect of anti-avoidance rules in connection with the use of capital allowances where there are transactions between connected parties or sale and leaseback transactions to name but a few.
There were, of course, other measures which have been announced which have not currently been legislated for. These include:
- Details of the strict liability offence
- Provisions outlining the Help to Buy ISA (there appears to be no regulations to date)
- The trivial benefits exemption
- The facility to take cash from a cash ISA and replace it with cash in the same tax year without the replacement sum being treated as a fresh subscription
- Tax charge on lump sum death benefits post 75 which was to reduce to the recipient’s marginal rate(s) of tax
While some measures which have been announced have not yet been legislated for, we now await a further Budget in July. This means we are likely to see further draft clauses in another Finance Bill which, in turn, could incorporate provisions in respect of some of the previously announced measures. So, it looks like we are in for an interesting time ahead!
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